"http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"> Determinants of income inequality | Afandi | Economic Journal of Emerging Markets

Determinants of income inequality

Akhsyim Afandi, Vebryna Permatasari Rantung, Hazem Marashdeh


This study examines whether changing economic structure, social conditions, and financialization are responsible for increased income inequality in Indonesia. By employing panel data of 32 provinces in Indonesia that spans from 2007 to 2013, it finds that structural change affects income inequality, increased share of finance reduces inequality, which is against the financialization hypothesis, and social conditions have expected effects on income inequality. While an increased share of both agriculture and service sectors tends to reduce inequality, an increased share of manufacture sector has no effect on inequality. This study finds that falling poverty increases inequality, implying that policy to reduce poverty might not be neutral for inequality and instead cannot prevent it from increasing. Since the higher the college participation rate the higher income inequality tends to be, it does not automatically imply that in order to reduce inequality we need to reduce the number of people who go to college. It might be the case that the college participation rate has not reached a turning point, below which its increase increases inequality, but beyond which its increases reduces inequality.


inequality, poverty, financiali-zation, economic structure

Full Text:



Agnello, L., & Sousa, R. M. (2012). How do banking crises impact on income inequality? Applied Economics Letters, 19(15), 1425–1429. https://doi.org/10.1080/13504851.2011.631885

Akita, T. (2003). Decomposing regional income inequality in China and Indonesia using two-stage nested theil decomposition method. Annals of Regional Science, 37(1), 55–77. https://doi.org/10.1007/s001680200107

Akita, T., Lukman, R. A., & Yamada, Y. (1999). Inequality in the distribution of household expenditures in Indonesia: A theil decomposition analysis. The Developing Economies, 37(2), 197–221. https://doi.org/10.1111/j.1746-1049.1999.tb00231.x

Albrecht, D. E., & Albrecht, C. M. (2007). Income inequality: The implications of economic structure and social conditions. Sociological Spectrum, 27(2), 165–181. https://doi.org/10.1080/02732170601118153


DOI: http://dx.doi.org/10.20885/ejem.vol9.iss2.art5

Article Metrics

Metrics Loading ...

Metrics powered by PLOS ALM

Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Economic Journal of Emerging Markets (EJEM)
ISSN 2086-3128 (print), ISSN 2502-180X (online)
Published by:
Center for Economic Studies, Department of Economics,
Universitas Islam Indonesia, Indonesia.

Creative Commons License
EJEM by http://journal.uii.ac.id/index.php/JEP/ is licensed under a Creative Commons Attribution 4.0 International License.